Intel's Mixed Tell

Intel ( INTC) boosted revenue by 18% year over year, including a legal charge, but the company missed analysts' earnings expectations by a penny.

The giant chipmaker also said sales in the fourth quarter are likely to be a bit below Wall Street's estimates, largely due to a $100 million inventory buildup in the third quarter.

Although the build represents only about two days of chip shipments, "inventory" is a scare word in the semiconductor world, and it probably accounted for some of the stock's downward movement following the announcement, said RBC Capital Markets analyst Apjit Walia.

Intel slipped 77 cents a share, or 3.3%, to $22.95, in after-hours trading following the earnings announcement late Tuesday. The news also hit the Semiconductor HOLDRs ( SMH) exchange-traded fund, which fell 1.2%.

The company earned a profit of $2 billion, or 32 cents a share, including a 4-cents-a-share charge related to repatriated earnings and a 2-cents-a-share legal charge. The 4-cent charge had been included in the company's guidance and First Call estimates, but the unexpected 2-cent charge was not. On that basis, analysts were expecting a profit of 33 cents a share.

The legal charge dented gross margins, which came in at 59.7%. Backing the charge out, margins would have been 61.1%, which was the at the high end of the company's guidance, CFO Andy Bryant said in a brief interview.

Total revenue in the September quarter was $9.96 billion, up 8% sequentially. Net income of $2 billion was up 5% year over year and down 2% sequentially.

Analysts had expected the company to post revenue of $9.92 billion in the third quarter.

CEO Paul Otellini expressed satisfaction with the quarter, saying, "We achieved all-time records in company revenue and unit shipments across all of our major product lines."

Although sales of chips for use in computer notebooks and other mobile devices represent about one-third of the company's revenue, those sales grew much faster -- 38% year over year -- than chips for desktops and servers, which grew at 9%. The company now believes that notebooks make up about one-third of worldwide PC shipments.

Intel, which was embarrassed when rival Advanced Micro Devices ( AMD) brought its dual-core processors to market first, said it will ship "millions" of the advanced chips during the current quarter. The company expects to ship them at a much faster pace next year, said Otellini.

For the fourth quarter, Intel expects revenue between $10.2 billion and $10.8 billion. Analysts were expecting $10.7 billion, a bit above than the midpoint of the company's guidance. Margins are expected to hit 63%, "plus or minus a couple of points."

Research and development spending expectations are unchanged for the year at about $5.2 billion, as are expectations for capital expenditures, at $5.9 billion, plus or minus $200 million.

The solid third-quarter sales figures were expected. The company said in September that "there's no real surprise expected in the revenue line."

And on Monday, there was more evidence that PC sales, the driver of much of Intel's business, are solid. Worldwide PC shipments rose more than 17% in the third quarter, according to market researcher IDC. "Currently, the economic environment is not the critical factor affecting PC adoption cycles," wrote analyst Loren Loverde. "What we're seeing now is a combination of PC replacements and new users responding to low-price milestones."

Intel didn't have enough capacity to build chipsets -- circuitry inside a PC that moves data to and from the microprocessor -- earlier in the year. Because a processor doesn't work without a chipset to plug into it, customers who couldn't get Intel chipsets went to rival AMD for them and for processors.

Bryant said that although the capacity situation is improving, he expects it to remain tight though the end of the year.